The Economics and Demographics That Drive the US Beer Industry

Lester Jones, Chief Economist National Beer Wholesalers Association [email protected] Twitter @joneslester

https://www.youtube.com/watch?v=xizCOdu3_1E Length of Economic Expansions: Current vs. Previous Six Longest 130 120 120 115 110 106

100 92 90

80 73 70 60 58 # of # of Months 50 45 40 30 20 10 0 June 2009 to March 1991 to Feb 1961 to Dec Nov 1982 to July Nov 2001 to Dec March 1975 to Oct 1949 to July December 2018 March 2001 1969 1990 2007 Jan 1980 1953 What will kill this expansion? • Most likely, high interest rates as Fed responded to rising inflation. Just like the late 1950s, late 1960s, late 1980s. But already see central banks around the world slow down in hikes. • Energy/Oil shock inflation – In 1974 caused a recession as higher prices eroded purchasing power. • Collapse of dot.com investment boom of late 1990s, together with stock market crash. • Collapse of housing and excess leverage that led up to 2008-09 financial crisis. • Or something new…federal shut down: Q1 2019 GDP forecasts = 0% and job losses on the horizon. Total U.S. Goods Producing vs Service Providing BLS Employment: Jan 2008 to Dec 2018 135,000 24,000

130,000 22,000

125,000 20,000

120,000 18,000

115,000 16,000

Service Employment Service 110,000 14,000 For now…the country has historically low unemployment rates, 105,000 consistently adding new jobs (100,000+), and experiencing wage growth 12,000 ProducingGoods Employment across broader categories – even in goods producing sectors – blue collar 100,000 10,000 1/1/2008 4/1/2008 7/1/2008 1/1/2009 4/1/2009 7/1/2009 1/1/2010 4/1/2010 7/1/2010 1/1/2011 4/1/2011 7/1/2011 1/1/2012 4/1/2012 7/1/2012 1/1/2013 4/1/2013 7/1/2013 1/1/2014 4/1/2014 7/1/2014 1/1/2015 4/1/2015 7/1/2015 1/1/2016 4/1/2016 7/1/2016 1/1/2017 4/1/2017 7/1/2017 1/1/2018 4/1/2018 7/1/2018 10/1/2008 10/1/2009 10/1/2010 10/1/2011 10/1/2012 10/1/2013 10/1/2014 10/1/2015 10/1/2016 10/1/2017 10/1/2018 Service Employment Good Producing Employment U.S Labor Force Participation Rates Who is Working…? Men 25-34 Women 25-34 92.5 76.0 92.0 75.8 91.5 75.6 91.0 75.4 90.5 75.2 90.0 75.0 89.5 74.8 89.0 74.6 88.5 74.4 88.0 74.2 87.5 74.0 2008 2010 2018 2008 2010 2018

Source: U.S. BLS: Labor Force Statistics from the Current Population Survey Differences Between Genders Alcohol Past 30 Days 160 69.1% percent of males respondents / 48.4% of population = 143 140

120

100

Index Base = 100 80

60

40 Craft Beer Import Beer Light Beer Liquor Cider FMB Wine Male Female

Source: NBWA and Scarborough USA+ 2018 Release 1 US Demographics Legal Drinking Age Adults (21+ / LDA)

Total Legal Drinking Age Adults LDA Share of Total Population 245 74.0%

240 73.5%

235 73.0%

230 72.5% Millions

225 72.0%

220 71.5%

215 71.0%

210 70.5% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018

US Fertility Rates Have Plummeted Into Uncharted Territory. 60.2 babies were born in 2017 for every 1,000 women of 'childbearing' age (15-44) – a low not seen in the US since officials Source: Compiled by NBWA from U.S. Census Bureau 2018 began charting. U.S. Population by Age

5,000,000 2017

4,500,000

4,000,000 40 is the most 3,500,000 irrelevant age? 3,000,000

2,500,000 Two generations at formidable transition 2,000,000 points in their lives Fewer new drinkers 1,500,000 each year

1,000,000 3 out of 4 people are 21+

500,000

0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 AGE Source: U.S. Census and NBWA 2017. Hispanic Share of U.S. Census Population 2010 to 2017 18.5%

18.0%

17.5%

17.0%

16.5%

16.0%

15.5% 2010 2011 2012 2013 2014 2015 2016 2017 Hispanic Preferences Alcohol Past 30 Days 160 22.5% percent of respondents / 14.8% of population = 152 140

120

100

80

60 Index Base = 100 40

20

0 Imports Light Beer FMB Hard Liquor Wine Domestic Cider Craft Regular Hispanic Ethnicty Source: NBWA and Scarborough USA+ 2018 Release 1 Imports and Mexico Share of Volume 1990 to 2018

Imports Share of Total Industry Mexico Share of Total Imports (70% of all Imports 2018) 20% (17.7% of Total Industry 2018) 80%

18% 70% 16% 60% 14% 12% 50% 10% 40% 8% 30% 6% 20% 4% 10% 2% 0% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Source: U.S. Commerce and NBWA. Count of Brewers and Craft Share of Volume 2000 to 2018 Count of Craft Share 10,000 14% 9,000 12% 8,000 7,000 10% 6,000 8% 5,000 4,000 6%

3,000 4% 2,000 2% 1,000 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Count of Breweries Craft Share

Source: U.S. TTB and NBWA. Beer Segment Shares Growing High-End Beyond 40 Share 100.0

90.0 25.1 24.3 23.1 23.7 22.8 21.7 21.2 21.0 80.0

70.0

60.0 39.5 37.7 42.0 40.6 46.9 43.6 50.0 48.4 48.0

40.0

30.0

Segment Segment ShareTotal of Volumes 20.0 37.2 38.9 40.9 32.3 34.8 26.0 27.2 29.6 10.0

0.0 2010 2011 2012 2013 2014 2015 2016 2017 High End (Craft/Imports/FMB/Cider) Premium Sub Premium/Malt-Liquor

Source: Beer Marketers Insights, 2018. Total U.S. Ethanol Per Capita 2010 to 2017 2.5

0.79 0.81 0.83 0.84 0.84 0.86 0.87 0.9 2.0

1.5 0.37 0.38 0.38 0.38 0.38 0.38 0.39 0.39

1.0 Gallons PerGallons LDA 1.34 1.31 1.31 1.30 1.30 1.30 1.29 1.27 0.5

0.0 2010 2011 2012 2013 2014 2015 2016 2017 Beer Wine Spirits

Source: Compiled by NBWA from TTB, Discus and BIG, 2018 (2017 wine volumes estimated by NBWA) Total U.S. Ethanol Per Capita 2010 to 2017 2.6 Better economic times = a little bit of incremental consumption 2.6

2.6

2.5

2.5 0.90

Gallons PerGallons LDA 0.87 0.86 2.5 0.83 0.84 0.84 0.79 0.81 2.5

2.5 2010 2011 2012 2013 2014 2015 2016 2017 Beer Wine Spirits

Source: Compiled by NBWA from TTB, Discus and BIG, 2018 (2017 wine volumes estimated by NBWA) vs Colorado Total Per Capita Ethanol Consumption

Texas (TABC) Colorado (Dept of Revenue)

3.0 3.0

2.5 2.5

2.0 2.0

1.5 1.5

1.0 1.0

0.5 0.5

0.0 0.0 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

Beer Liquor Wine 3.2 Beer Repeal Beer Cider Liquor Wine Growth in ABV for Beer and Liquor 2010 vs 2017 Average Weighted ABV Beer Average Weighted ABV Liquor 4.72 38.6 4.70 38.4 4.68 4.66 38.2 4.64 38.0 4.62 4.60 37.8 4.58 37.6 4.56 4.54 37.4 2010 2017 2010 2017

Source: NBWA, Industry Affairs – Calculated on average weighted ABV across top 100/150 brands ABV by Beer Segment 2017 7.0% 6.5% 6.5%

6.0% 5.4% 5.0% 5.0% 5.0% 4.7% 4.2% 4.0%

3.0%

2.0%

1.0%

0.0% FMB Malt Craft Other Regular Import Light

Source: NBWA industry Affairs, 2018 Alcohol Beverage Inflation BLS at Home (Off Premise) Consumer Price Index Jan 2008 to Dec 2018

125.0

120.0

115.0

110.0 Index Base 100 at2008

105.0

100.0 1/1/2008 3/1/2008 5/1/2008 7/1/2008 9/1/2008 1/1/2009 3/1/2009 5/1/2009 7/1/2009 9/1/2009 1/1/2010 3/1/2010 5/1/2010 7/1/2010 9/1/2010 1/1/2011 3/1/2011 5/1/2011 7/1/2011 9/1/2011 1/1/2012 3/1/2012 5/1/2012 7/1/2012 9/1/2012 1/1/2013 3/1/2013 5/1/2013 7/1/2013 9/1/2013 1/1/2014 3/1/2014 5/1/2014 7/1/2014 9/1/2014 1/1/2015 3/1/2015 5/1/2015 7/1/2015 9/1/2015 1/1/2016 3/1/2016 5/1/2016 7/1/2016 9/1/2016 1/1/2017 3/1/2017 5/1/2017 7/1/2017 9/1/2017 1/1/2018 3/1/2018 5/1/2018 7/1/2018 9/1/2018 11/1/2008 11/1/2009 11/1/2010 11/1/2011 11/1/2012 11/1/2013 11/1/2014 11/1/2015 11/1/2016 11/1/2017 11/1/2018 Beer CPI Alcohol Beverage Inflation BLS at Home (Off Premise) Consumer Price Index Jan 2008 to Dec 2018

125

120

115

110 Index Base 100at 2008

105

100 1/1/2008 4/1/2008 7/1/2008 1/1/2009 4/1/2009 7/1/2009 1/1/2010 4/1/2010 7/1/2010 1/1/2011 4/1/2011 7/1/2011 1/1/2012 4/1/2012 7/1/2012 1/1/2013 4/1/2013 7/1/2013 1/1/2014 4/1/2014 7/1/2014 1/1/2015 4/1/2015 7/1/2015 1/1/2016 4/1/2016 7/1/2016 1/1/2017 4/1/2017 7/1/2017 1/1/2018 4/1/2018 7/1/2018 10/1/2008 10/1/2009 10/1/2010 10/1/2011 10/1/2012 10/1/2013 10/1/2014 10/1/2015 10/1/2016 10/1/2017 10/1/2018

Beer Liquor Wine Alcohol Beverage Inflation Gap for Beer/Wine and Beer/Liquor BLS at Home (Off Premise) Consumer Price Index Dec 2018 22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0

Inedx Inedx Gap between CPI over Time 2.0 0.0 -2.0 -4.0 1/1/2008 3/1/2008 5/1/2008 7/1/2008 9/1/2008 1/1/2009 3/1/2009 5/1/2009 7/1/2009 9/1/2009 1/1/2010 3/1/2010 5/1/2010 7/1/2010 9/1/2010 1/1/2011 3/1/2011 5/1/2011 7/1/2011 9/1/2011 1/1/2012 3/1/2012 5/1/2012 7/1/2012 9/1/2012 1/1/2013 3/1/2013 5/1/2013 7/1/2013 9/1/2013 1/1/2014 3/1/2014 5/1/2014 7/1/2014 9/1/2014 1/1/2015 3/1/2015 5/1/2015 7/1/2015 9/1/2015 1/1/2016 3/1/2016 5/1/2016 7/1/2016 9/1/2016 1/1/2017 3/1/2017 5/1/2017 7/1/2017 9/1/2017 1/1/2018 3/1/2018 5/1/2018 7/1/2018 9/1/2018 11/1/2008 11/1/2009 11/1/2010 11/1/2011 11/1/2012 11/1/2013 11/1/2014 11/1/2015 11/1/2016 11/1/2017 11/1/2018 Trend in Beer/Liqour CPI Gap Trend in Beer/Wine CPI Gap IRI Scan: Total US: Multi Outlet + Conv 12/30/2018 Volume Sales Change vs YA % Change vs YA BEER 1,469,082,136 -3,729,563 -0.3% ANHEUSER-BUSCH INBEV 696,817,906 -15,263,507 -2.1% MILLERCOORS BREWING 368,149,746 -11,851,173 -3.1% CONSTELLATION BRANDS 142,348,482 15,150,185 11.9% HEINEKEN USA INC 50,153,414 -3,042,985 -5.7% BOSTON BEER CO 28,561,186 4,434,547 18.4% MARK ANTHONY BRANDS INC 22,497,335 4,444,936 24.6% PABST BREWING CO 28,928,122 -1,555,424 -5.1% DIAGEO BEER COMPANY USA 13,735,058 1,273,551 10.2% D G YUENGLING & SON INC 16,722,439 -251,723 -1.5% SIERRA NEVADA BREWING CO 7,171,843 83,089 1.2% FIFCO USA 11,132,454 -944,740 -7.8% NEW BELGIUM BREWING COMPANY 5,525,883 -473,052 -7.9% THE LAGUNITAS BREWING COMPANY 4,748,144 74,935 1.6% PHUSION PROJECTS INC 4,543,452 -314,861 -6.5% THE GAMBRINUS COMPANY 4,098,904 -168,242 -3.9% CRAFT BREW ALLIANCE INC 3,587,619 -277,515 -7.2% FOUNDERS BREWING CO 3,387,061 929,772 37.8% STONE BREWING CO. 1,753,418 170,544 10.8% BELLS INC 1,981,682 71,276 3.7% CANARCHY CRAFT BREWERY COLLECTIVE 1,794,098 213,689 13.5% FIRESTONE WALKER BREWING COMPANY 2,049,306 308,204 17.7% DESCHUTES BREWERY 1,748,468 -180,977 -9.4% SWEETWATER BREWING COMPANY, LLC 1,866,343 24,879 1.4% ARTISANAL BREWING VENTURES 1,076,672 150,200 16.2% DOGFISH HEAD CRAFT BREWERY 951,349 99,209 11.6% IRI Beer Segments Growth CY Ending 12/30/2018 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% DOM SUPER FLAV MALT BEV IMPORT CRAFT DOM SUB- NON- DOM PREMIUM PREM PREMIUM ALCOHOLIC Top Five vs. All Others Market Shares in U.S. 1977 2018 Brewer Share Brewer\Importer Share AB (1852) 23% ABInbev (1366/2008) 40.8% Miller (1855) 15% Miller-Coors (2007) 23.8% Schlitz (1849) 14% Constellation(1940) 9.9% Pabst (1844) 10% HUSA (1864) 3.5% Coors (1873) 8% Pabst (1844/2014) 2.1% Top 5 70% Top 5 80%

All Others - 44 30% All Others- 7,000+ 19% Total 100% Total 100% Domestic Brewer Counts* 49 Domestic Brewer Counts* 7,000+ In 2018, more than 50% of “Others” from past 5 years!

Source: Beer Marketer's Insights, 2019. *Brewer counts do not include importers. Access to Alcohol is Expanding!

Fast FoodBed, Bath and Beyond Nordstrom's Whole Foods

Barbers and Salons Taprooms Movie Theaters Laundromats Even at The Library… Total U.S. Retail Establishments Selling Alcohol 2008 to 2018 700,000

650,000 644,647 644,939 625,276 631,699 610,299 602,757 600,000 585,690 571,290 553,458 550,000 531,705 536,807

500,000

450,000

400,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: TDLinx Account Tracker Report: Beer, Wine or Spirit Selling Accounts, 2018. Even as Retail Expands in Virtual Space…

The Evolution of the Wine Club • Amazon • Drizly • Minibar • Klink • Saucey • Hopsy • Total Wine • Brick and mortar… As New Retail and E-Commerce Expands… Traditional Bars and Taverns Close? U.S. BLS: Establishment Counts 47,000

46,000

45,000

44,000

43,000

42,000 Count Count Establishmentsof

41,000

40,000 2010 2011 2012 2013 2014 2015 2016 2017

Number of Establishments in Private NAICS 722410 Drinking places, alcoholic beverages for All establishment sizes in U.S. TOTAL Growth in Alcohol Beverage Wholesalers 2010 to 2018 20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000 2010 2011 2012 2013 2014 2016 2017 2018

Source: U.S. TTB and U.S. BLS/CQEW, 2018 SKU Proliferation and Inventory Turn NBWA DPR Study

Average Number of SKUs Inventory Turn 1,200 22.0

1,000 20.0

800 18.0

600 16.0

400 14.0

200 12.0

0 10.0 1999 2003 2006 2008 2010 2012 2014 2016 1999 2003 2006 2008 2010 2012 2014 2016 Count of SKUs # of Times

Source: NBWA, Distributor Productivity Report. TTB Permitted Brewery Count 9,865 Permits as of Sept 2018 State Count State Count State Count 54 83 North Dakota 26 Alaska 50 48 363 Arizona 143 Maine 160 Oklahoma 53 52 Maryland 136 Oregon 376 California 1,204 Massachusetts 225 457 Colorado 492 500 33 120 236 South Carolina 92 36 Mississippi 19 South Dakota 34 DC 14 Missouri 162 137 Florida 376 Montana 107 Texas 370 115 Nebraska 60 Utah 45 Hawaii 34 Nevada 49 Vermont 89 Idaho 85 New Hampshire 105 Virginia 322 329 139 531 229 New Mexico 124 31 Iowa 124 New York 520 Wisconsin 298 Kansas 59 North Carolina 374 Wyoming 43

Source: NBWA and TTB, September 2018. Brewery Permits per 100,000 Residents 2018 LDA Pop (est) State Count State Count State Count Alabama 1.49 Kentucky 2.52 North Dakota 4.76 Alaska 9.48 Louisiana 1.4 Ohio 4.2 Arizona 2.74 Maine 15.35 Oklahoma 1.87 Arkansas 2.36 Maryland 3.01 Oregon 11.84 California 4.12 Massachusetts 4.3 Pennsylvania 4.73 Colorado 11.69 Michigan 6.73 Rhode Island 4.1 Connecticut 4.45 Minnesota 5.74 South Carolina 2.43 Delaware 5.21 Mississippi 0.88 South Dakota 5.43 DC 2.57 Missouri 3.58 Tennessee 2.72 Florida 2.29 Montana 13.49 Texas 1.84 Georgia 1.51 Nebraska 4.36 Utah 2.15 Hawaii 3.16 Nevada 2.16 Vermont 18.64 Idaho 6.87 New Hampshire 10.1 Virginia 5.09 Illinois 3.49 New Jersey 2.06 Washington 9.47 Indiana 4.72 New Mexico 8.13 West Virginia 2.25 Iowa 5.41 New York 3.47 Wisconsin 6.92 Kansas 2.83 North Carolina 4.87 Wyoming 10.28 US Average = 4.1 Source: NBWA and TTB, September 2018. TTB Brewery Permits Issued Per Day 2010 to YTD September 2018

5.0 4.6 4.5 4.3 4.0 3.5 3.5 3.4 3.1 3.0 3.0 2.8 2.5 2.0 1.6 1.7 1.5 Permits Issued Per Day 1.0 1.0 0.6 0.5 0.0 2010 2011 2012 2013 2014 2015 2016 2017 18 Q1 18 Q2 18 Q3

Source: www.ttb.gov/beer/beer-stats.shtm and NBWA Industry Affairs, 2018 Continued Investment in Alcohol Beverages Cumulative $1.5 Billion in Loan Approvals/Guarantees since 2009

$300,000,000 In Addition: $250,000,000 1. Eliminated FET Bond Requirement 2. Reduced Paperwork and Tax Filing (annual) 3. Reduced FET to $3.50 (CBMRTA) $200,000,000 4. Reduced state taxes 5. State and local economic development support $150,000,000 6. Expanded retail and self distribution privileges 7. All = more new entrants on horizon $100,000,000

$50,000,000

$0 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Brewing Distilling Whining THANK YOU

Lester Jones, Chief Economist National Beer Wholesalers Association [email protected] Twitter @joneslester